European Bankers Meet to Refine Greek Debt Plan

New York Times
July 6, 2011

European officials scrambled Wednesday to prevent the debt crisis in Greece from destabilizing their currency union, threatening credit rating agencies with possible retaliation after a decision by Moody’s on Tuesday to downgrade Portugal’s debt to junk status raised fears that Spain and Italy might soon find themselves in the line of fire, too.

The surprise downgrade included a warning that Portugal, like Greece, might need a second bailout, pushing European stock markets lower Wednesday and adding to the woes of Ireland, Spain and Italy as traders dumped their bonds, pushing up their interest rates.

Portuguese and European officials condemned the ratings agencies for intensifying the euro crisis, seeking to blame them for overreacting this time after they were condemned for moving too slowly to warn of problems in the U.S. mortgage market that led to the meltdown on Wall Street three years ago. The move by Moody’s, said José Manuel Barroso, president of the European Commission, added “another speculative element to the situation.”

With both Standard and Poor’s and Moody’s making it more difficult for policy makers handling the bailouts of Greece, Portugal and Ireland, Michel Barnier, the European commissioner for financial regulation, said the credit rating agencies needed to tread carefully.

“I invite the agencies, which are under the control of national supervisors, to be extremely careful to fully respect E.U. rules,” Mr. Barnier said in a statement from Brussels. “They should learn the lessons from the past.”

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